Commerzbank’s analysts treat the subject today, though they don’t theorize as to why:

Precious metals: Gold’s recovery appears to be faltering somewhat. The yellow precious metal is trading at a good $1,460 per troy ounce this morning. The gold ETFs tracked by Bloomberg recorded outflows yesterday for the 20th consecutive day of trading. Holdings this month have meanwhile been diminished to almost exactly the same extent as they were in the whole of the first quarter. The outflows are concentrated primarily on the SPDR Gold Trust, the world’s largest gold ETF, whose holdings have now fallen to their lowest level since September 2009. What is also remarkable is the fact that the ETF outflows are limited almost solely to this gold ETF, while silver, platinum and palladium ETFs are maintaining their holdings at a more or less constant level, and at times are even registering inflows. The situation as regards demand for coins is also entirely different. So far in April, the U.S. Mint has sold 209.5 thousand ounces of gold coins, the highest volume since December 2009. Great Britain has reported three-fold coin sales in April, while Australia’s Perth Mint is currently producing coins even at the weekend in order to satisfy demand, which has reached its highest level since the 2008 financial crisis. In Asia, the exceptionally high physical gold demand is being reflected in rising premiums: in Hong Kong, up to $3 per troy ounce has to be paid on top of the spot price in London – the highest figure since October 2011 – while the premium in India is now five times its pre-slump level.

Here’s a theory: It’s a very different (and more fickle) type of investor who buys gold in the financial markets. Over four months, we’ve seen what in all likelihood was a mass liquidation by hedge funds and big institutions, with an honorable mention to the individual investor. The rest of the market operates by a very different logic.

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APRIL 30, 2013 3:49 P.M.

Roger Morgan wrote:

I'm long gold; I don't trade the futures markets.

But if I were long gold in the futures markets, I'd take delivery.

APRIL 30, 2013 5:02 P.M.

eddy112 wrote:

Brendan,
I cannot argue with your theory (by the way, I subscribe to Barron's paper version). The COMEX speculator is a fickle one. Most are the Turtle Trader Trend followers using momentum investing. This type of investing can work in most futures markets. However, I think it is bit treacherous in Gold and Silver. These momentum investors are always wrong at the 'end' point and someone must be acheiving huge losses. In the recent gold smash, it was the small investor who took it big on the chin. Most of the damage to gold was done on Friday after the market closed on on Sunday. The little guy woke up on Monday with a message from a margin clerk - you are out.

This can happen in all markets but in gold and silver it seems to happen more often. Maybe for a few reasons.

1. Gold and silver are non perishable and can be stored. Grains, softs, oil, etc cannot be.
2. The amount of gold above ground is 1000 times greater than annual production.
3. The CFTC allows massive and highly concentrated positions by financial institutions in gold and silver. These are not allowed in other futures markets. For example, JPM once had 65 percent of the entire NET short position in Silver on the COMEX.
4. In the paper gold and silver markets manipulation must be quite common. When a few entities can control the entire NET short position, mischief is possible and likely. This is a conspiracy theory, I admit, but remember these same giant entities manipulated the Londor LIBOR market for their own gains for years before being caught.

the Physical coin market is clearly different. No major entity can 'short' it to death. It takes time and effort to make a coin and the numbers are limited. Premiums always exist and rise and fall. Importantly, most gold coin buyers are buying for long term protection and savings - not for immediate speculation. They are not leveraged and most likely have liquid cash assets to use when needed.

It is quite odd that the GLD fund is being liquidated and the SLV and PPLT/PALL funds are not. This suggests someone wants physical gold for whatever reason and not because investors are bearish and throwing in the towel. The latter explanation is the one given by most of the financial media (including Barrons who is one of the anti-gold cheerleaders).

I'm more and more convinced that there is a run on the gold vaults of the bullion banks and they are scrambling to find physical gold anyplace they can get it. SPRD GLD seems like a likely spot. Currently, the gold market probably has 100 paper claims for gold for every actual piece of gold available. Under such a scenario, a 'run' will eventually happen. However, to postpone the day of reckoning certain tactics may be employed. One of them is to project confidence in the 'banks' abiltity to deliver, the other is to actually deliver as promised to a small group of early demanders, and the other is a foster an atmosphere where the 'demander at the window' not only goes away but is inclined to come back and deposit the gold back in the bank.

MAY 1, 2013 11:54 A.M.

John Smith wrote:

eddy112, I agree with your analysis of the situation. I have followed this writer's series of articles pointing out the falling price of precious metals - on paper. I will add only this. As a buyer of coins I am fully aware that as long as the price discovery mechanism is the futures market, prices are irrelevant to me. The lower the better. I have accepted that the banks have the power to make the price of silver and gold in the various paper currencies appear to be whatever they like. There is an infinite supply of paper currency to cover the large shorts to which you refer and in contrast there is a limited supply of paper currency available to those who wish to purchase metals to have and hold. While people will still accept paper currency in exchange for gold and silver coins, I will accumulate what I can for in the end, something is better than nothing.

MAY 1, 2013 12:54 P.M.

David W. Young wrote:

eddy112 below has hit is pretty much on the money. The answer to the GLD liquidation is investors converting paper claims on Gold that does not exist in PHYSICAL FORM IN A MORGAN DEPOSITORY to kick Morgan in the teeth for shorting Gold and Silver on the Comex and London Exchange without any chance of covering said shorts with physical bullion. The informed bullion buyer knows that the Emperor has no clothes as in the Cyprus uninsured bank deposits that are being wiped out and that Morgan has nothing but paper I.O.U.'s in GLD with physical bullion having gone out the door, if ever there in the first place, to cover other short positions in gold Morgan has entered into around the world. Sellers of GLD are buying Physical Gold coins and bars, I am a bullion dealer, I can tell you demand if off the charts. SELL PAPER, BUY PHYSICAL, DON'T TRUST THE REGULATORS (CFTC), GOVERNMENT AGENCIES, OR THE FEDERAL RESERVE. Loss of confidence genie out of the bottle, will not go back in any time soon. Sage of Wexford

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Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.